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China's Africa Gambit

John Lee

On Oct. 20, China announced, almost casually, that it was canceling 150 items of maturing government debt owed to it by 32 African countries. The announcement came a few days before a meeting between China’s top legislator Wu Bangguo and Kenneth Marende, the Speaker of Kenya’s National Assembly, to discuss cooperation between the two countries. Further, on Nov. 8, Chinese Premier Wen Jiabao was to attend the opening ceremony of the 4th Ministerial Conference of the Forum on China-Africa Cooperation to be held in Sharm el-Sheikh, Egypt.

Top-level meetings between China’s leaders and their African counterparts have been occurring at the frequency of at least one every month. What is Beijing up to? When China declared 2006 to be the “Year of Africa,” hosted 48 African nations at the annual 2006 China-Africa summit and rolled out the red carpet for 17 African heads of state, we assumed it was all about gaining access to oil and minerals to fuel China’s awesome economic growth. But there is much more going on than a meet, greet and grab from the African continent. China has big economic plans and ambitions in Africa that go beyond oil and minerals. While much of the world still views Africa as a basket-case continent, Beijing is thinking ahead and busy establishing a foothold in Africa’s potentially large consumer markets.

Our common impression of Africa owes more to Joseph Conrad’s Heart of Darkness than we would like to let on: Africa is inscrutable, wild, primitive and decades away from genuine modernization. Like the European businessmen in Conrad’s 1902 novel, we assume Africa’s only assets come from the land or beneath it. In the Heart of Darkness it was ivory. Now it is oil and minerals.

But China has caught on to something that eludes most governments and companies in the West. Chinese state-owned and private enterprises believe African consumers could be the great untapped gold mine. Beijing’s engagement with African leaders and governments is increasingly about ensuring that Chinese firms are best placed to sell their products when Africans start buying.

While India is seen as a potential mass-consumer market in the future, statistics for Africa (if treated as one entity) are remarkably similar. For example, the African economy has been experiencing similar growth rates to India’s of 6% to 7% over the past decade, and will likely see 3% to 4% growth in 2009 impressive in the current global environment. GDP per capita in Africa is similar to that of India and, like India, the population in Africa is growing and will be similar in size to China’s population in several decades.

Vijay Mahajan, author of Africa Rising, says there are 50 million to 150 million economic élites in Africa with similar spending power to middle classes in the West. More importantly, there are 350 million to 500 million people in the African aspirational classes from households with stable jobs that resemble counterparts in China and India being courted by Western firms. These African aspirants drink Coca-Cola, want mobile phones and yearn to own a car or motorcycle. The West focuses on the bottom half of Africans living in appalling poverty; Beijing is looking at the other half who might soon buy Chinese-made T-shirts, shoes and bicycles. China’s Ministry of Commerce, through banks and export agencies, is offering cheap loans and tax and export credits to Chinese state-owned companies seeking to build a base in Africa. Incentives are given to Chinese manufacturing and retail businesses in addition to exploration and construction companies. In return for so-called “no-strings-attached” aid and cheap loans to African countries, Beijing expects privileged access to oil and resources, political support in institutions like the U.N., and African governments be they good, bad or despotic to give Chinese companies the first opportunities to reach local consumer markets.

There are weaknesses to Beijing’s great plan. For example, cheap Chinese goods flooding the continent sacrifice African jobs, sparking a backlash against the Chinese presence. Corruption is serious, institutions are weak and political risk in various African countries remains high, meaning the possibility of social and economic breakdown is real. No one will bet their house on continued growth in many African countries. But the West should take note: China has a plan to seize the advantage should the African consumer take flight.

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